Securities and Exchange Commission v. Joseph J. Monterosso
2014 U.S. App. LEXIS 12239
| 11th Cir. | 2014Background
- SEC investigated GlobeTel for a fraudulent revenue scheme manufacturing off-net revenue; Monterosso ran GlobeTel’s wholesale business and Vargas assisted; Lynch was GlobeTel’s COO/CFO during key periods.
- The off-net program used fake invoices and CDRs to inflate revenue from subsidiaries and third parties that Globetel never transacted with.
- GlobeTel’s management including Lynch and Jimenez recorded the false revenue in the books and reports.
- From 2004–2006, off-net revenue accounted for a large portion of GlobeTel’s reported revenue, inflating financial statements by over $100 million.
- SEC filed complaints in November 2007 and June 2009 alleging violations of the Securities Act and Exchange Act; Monterosso and Vargas moved for summary judgment on antifraud claims; district court entered remedies for disgorgement, penalties, and officer-and-director bars.
- Appeals affirmed summary judgment on antifraud and recordkeeping violations and upheld remedies order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Antifraud liability and scienter | SEC argues Monterosso/Vargas acted with scienter; knowingly participated in the scheme. | Monterosso/Vargas contend no proof of intent to deceive; lack scienter. | Summary judgment affirmed; substantial evidence supports scienter. |
| Recordkeeping/Reporting violations | SEC shows fake invoices/CDRs falsified GlobeTel books; liability for Rule 13b2-1/2. | Monterosso/Vargas claim not officers for 13b2-1/2; arguments hinge on timing. | Held liable for 13b2-1/2 violations; argues under direction theory. |
| Remedies: disgorgement and civil penalties | SEC sought disgorgement and multi-tier penalties reflecting egregious conduct. | Challenge amounts and individual ability to pay; dispute penalties. | Remedies affirmed; joint-and-several disgorgement and civil penalties upheld. |
Key Cases Cited
- Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011) (maker of a statement depends on ultimate authority over content)
- SEC v. Carriba Air, Inc., 681 F.2d 1318 (11th Cir. 1982) (recklessness can suffice for scienter)
- SEC v. Ginsburg, 362 F.3d 1292 (11th Cir. 2004) (scienter can be shown by circumstantial evidence)
- Calvo, 378 F.3d 1211 (11th Cir. 2004) (joint and several liability for closely related violators; disgorgement)